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12/02/26
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FCA’s Value for Money framework for defined contribution pensions gathers pace
The next stage of consultation on the proposed Value for Money (VFM) Framework for defined contribution (DC) pensions has now been published, with responses due by 8th March 2026.
Consultation Paper CP26/1 sets out the FCA’s plans to introduce a consistent approach to assessing value for money for DC pension savers. The aim is clear: to ensure savers receive fair value, maximise their retirement outcomes and support the government’s broader economic growth strategy. Central to this is a shift away from narrow cost-based measures and towards a more holistic assessment of long-term value.
This will require Independent Governance Committees (IGCs) and trustees to exercise greater judgement, supported by open, transparent and comparable data. The regulator and government are keen to see a genuine focus on long-term value generation – recognising that short-term performance tells only part of the story.
Why long-term value in pensions really matters
Speaking during the passage of the Pension Schemes Bill, Torsten Bell, Parliamentary Under-Secretary of State for Work and Pensions, captured why this focus is so important for DC savers.
He explained how today’s pensioners often benefit from defined benefit schemes that guarantee an income in retirement, placing the investment risk firmly with employers. By contrast, tomorrow’s retirees with DC pensions carry that risk themselves. There are no guarantees. As Bell put it, how well a scheme performs “matters hugely”, and over the long term, even small differences in growth rates can translate into significant differences in retirement outcomes.
It is a powerful reminder that value for money in pensions is not an abstract regulatory concept. It has a direct and lasting impact on people’s financial security in later life.
Why it matters now
Embedding the Consumer Duty well is crucial for protecting customers, improving engagement and ensuring delivery of fair value – particularly for vulnerable clients. Regulatory scrutiny is intensifying, with the FCA expecting firms to evidence how they assess and monitor outcomes, design products responsibly and communicate effectively with consumers. Despite a reduced number of S166s the FCA is increasing its use of information requests as a supervisory tool. Consistent alignment is key to gaining a competitive advantage of fostering trust and transparency.
Consumer Duty, engagement and vulnerability
The proposed framework also closely aligns with the FCA’s Consumer Duty and the evolving regimes around guided retirement and targeted support. A strong VFM framework should particularly benefit consumers who are less financially engaged or vulnerable.
The FCA’s Financial Lives Survey highlights the scale of the issue. More than one in five non-retirees say they feel unprepared for retirement because they don’t understand their options. Meanwhile, over a quarter of DC pension savers show very low levels of engagement with their pension. For these consumers, a regime that sets clear expectations around value for money could make a meaningful difference.
What’s in scope and how it will work
The framework has been developed collaboratively by the FCA, the Department for Work and Pensions (DWP) and The Pensions Regulator (TPR). CP26/1 includes the FCA’s response to its earlier consultation (CP24/16), proposed final rules for contract-based schemes and proposals for trust-based schemes.
However, applying the framework to trust-based schemes will require new legislation through the Pensions Schemes Bill, which is currently before Parliament. The DWP plans to consult on draft regulations and will also host roundtables and stakeholder events to explore the practical implementation challenges.
In practice, the framework is intended to increase transparency and improve retirement outcomes by giving firms and consumers access to standardised metrics on costs and charges, investment performance and service quality. Each product will receive a RAGG rating, from red through to dark green, which will be published.
Raising the bar on accountability
Where schemes are rated amber or red, firms will be expected to take action to improve performance. If standards cannot be raised, providers may ultimately be required to move customers into better-performing schemes. This represents a significant shift in expectations around accountability and ongoing oversight.
While the proposed scope of the framework is broad, firms should pay close attention to the qualification tests set out in the consultation. Some arrangements, such as Executive Pension Plans (EPPs) and Small Self-Administered Scheme (SSAS), are expected to fall outside the regime in most cases.
What happens next
Further consultation is expected from the DWP on trust-based schemes, as well as from TPR on any necessary codes of practice or guidance. There may also be additional consultation from the FCA as the framework continues to evolve.
With responses to CP26/1 helping to shape the final policy, affected firms should take this opportunity to engage – either directly or through the planned roundtables and stakeholder events.
Seeking independent assurance
At TCC Group, we combine deep regulatory expertise with hands-on delivery experience to help firms implement complex change efficiently and at pace.
We support clients in preparing and validating implementation plans, embedding Consumer Duty principles into governance and culture and developing robust, auditable frameworks for monitoring customer outcomes. Our team can help you decode the VFM proposals, understand their impact on your business and implement the requirements effectively – ensuring compliance, resilience and better outcomes for your customers.
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